Friday, May 20, 2011

The current situation is not what the former presidents Raúl Alfonsín (Argentina) and José Sarney (Brazil) had in mind, when they signed the PICE (Programa de Integração e Cooperação Econômica Argentina-Brasil), commonly heralded as the precursor of the South American free-trade market Mercosur. At the time, the program even proposed a common currency, the Gaucho...

The situation has become rough. Argentina is not known for freedom of trade - it frequently figures in the list of countries with the most trade barriers and of the least free capital flows. However, this has usually been limited to evil empires such as the USA and China. But things have become more serious with Argentinas most important trade partner, Brazil.

Argentina exports 2bn USD of foodstuffs to Brazil, but Brazil also exports 500m of foodstuffs the other way around. So when Argentina started raising barriers in foodstuffs, Brazil retaliated. Things then escalated to the point when, last week, Brazil stopped emiting automatic licenses for automobiles from "neighboring countries", affecting Argentina strongly. Since then, each import process requires a separate license. Hundreds of cars are stuck at the border, awaiting licenses to be emitted.

The trade barriers today between both countries already affect, food, shoes and clothing, some machinery, some chemicals and more to come.

Alessandro Teixeira, Development Minister in Brazil and the Industry Secretary in Argentina, Eduardo Bianchi, have scheduled a meeting to discuss on how to proceed... and possibly try to figure out how all of this really started - the situation is pretty botched up and is affecting a high demand of imported goods in Brazil (due to a cheap USD and strong Real) adversely. If the situation escalates, which it surely may, large industry sections may continue to be affected.